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September Hogs and Pigs Report

02 October 2012

Shane Ellis

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US - For the past two years there has been enough modest profitability to entice a cautious and slow expansion of the nation’s swine industry. The 2012 drought and resulting high cost of feed have changed that trend, write Shane Ellis and Lee Schulz.

Producers have scaled back their farrowing plans until the middle of next summer when a more abundant corn crop will hopefully make feed more affordable. The outlook for next three months is bearish with a record number market hogs on track to come to market in the fourth quarter. Hog supplies in the first half of 2013 will be lower and hog prices are expected to recover.

For the past two years there has been enough modest profitability to entice a cautious and slow expansion of the nation’s swine industry. The 2012 drought and resulting high cost of feed have changed that trend. Producers have scaled back their farrowing plans until the middle of next summer when a more abundant corn crop will hopefully make feed more affordable. The outlook for next three months is bearish with a record number market hogs on track to come to market in the fourth quarter. Hog supplies in the first half of 2013 will be lower and hog prices are expected to recover.

Table 1 is a summary of the September USDA Hogs and Pigs Report. As of September 1the national hog and pig inventory, at 67.5 million head, was only slightly greater than a year ago. Breeding herd inventory, at 5.8 million head, was down a third of a percent and market hog inventory was up less than half a percent at 61.7 million head. The heaviest class of market hog inventory was up almost 5 percent, so it is expected that hog prices will remain soft for several more months. Lighter classes of market hogs were about a percent lower.

Nationally, sow farrowings for the rest of 2012 are down almost 3 percent. The decrease in farrowings will be partially offset by the continued increase in litter sizes which continue to increase by about a percent each year. Table 1 is a summary of the September USDA Hogs and Pigs Report. As of September 1the national hog and pig inventory, at 67.5 million head, was only slightly greater than a year ago. Breeding herd inventory, at 5.8 million head, was down a third of a percent and market hog inventory was up less than half a percent at 61.7 million head. The heaviest class of market hog inventory was up almost 5 percent, so it is expected that hog prices will remain soft for several more months. Lighter classes of market hogs were about a percent lower.

Nationally, sow farrowings for the rest of 2012 are down almost 3 percent. The decrease in farrowings will be partially offset by the continued increase in litter sizes which continue to increase by about a percent each year.

Closer to home, the Iowa inventory changes were a bit more intense. The supply of hogs due to be marketed in September and October were up more than 7 percent, and the supply of hogs for the fourth quarter will be up about 3 percent from last year. The breeding herd inventory in Iowa was down 2 percent with exactly 1 million head of breeding sows. The average litter size in Iowa during the summer was up 1.5 percent to nearly 10.5 pigs per litter. Within Iowa, plans for and construction of new finishing facilities started in late spring and early summer, when things were still looking good for this year’s crop. While profitability for this year soured with the drought, those plans to build were already in motion. Expect the number of market hogs in the state to continue to increase for the next year not because of profitability but because Iowa still has a cost of production advantage and now has more room for the additional hogs.

The price outlook for hogs is not great in comparison to the cost of production but it may not be as bearish as one predicted. During August and September the lean hog price in Iowa declined continuously with a low of about $65/cwt occurring in mid-September. While the fourth quarter hog price is expected to be the lowest of the year, there is hope that supplies and prices will be consistent. The hog industry has a weekly slaughter capacity of about 2.3 million head. When that threshold is exceeded, hog prices tend to bottom out, as was seen during the middle of September. If a consistent number of hogs come to market average prices could be in the mid to upper $70’s. Table 2 contains as summary of the predicted change in pork supply and average price range for the next year. These are compared with the September 28 futures settlement price adjusted for an Iowa basis. The ISU model suggests a little more bullish market than the futures are expecting in the next half year. For the spring and summer, hog prices will be back into the high 80’s to low 90’s as hog supplies level off from less farrowings and the general meat market heats up from lower meat supplies. Beef and poultry supplies will also be lower in the coming year, so all meat and live animal prices will be higher in 2013.

For now the profitability outlook is still suffering from the stifling high cost of feed. Producers are hoping for a better corn crop next year. With commodity prices as high as they are there will be plenty of incentive for crop producers to plant as many acres as possible, however good growing conditions are a must. Adequate winter precipitation and ground moisture prior to planting are all precursors for the condition and size of the crop. This year livestock producer will be watching the weather as much or more than those who grow the corn, soybeans, and hay. If conditions are not conducive to a good crop or if the drought pattern continues, swine producers will brace for continued high feed costs and plans for genuine expansion will be postponed.

Further Reading

You can view the full report by clicking here.

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